Kiwis Leaving NZ Hit with Unexpected Working for Families Debt

A New Zealand family who relocated to Australia last year is facing a demand from Inland Revenue (IRD) to repay $4,000 in Working for Families tax credits, after the agency “annualised” the father’s income to a figure significantly higher than his actual earnings in New Zealand.

Kenneth, who requested his last name not be used, said he and his wife moved from Auckland to Australia in January 2025. His total New Zealand income for the 2024-2025 tax year was just under $84,000. However, the IRD calculated his income as approximately $110,000, triggering the repayment demand. “Because of this imaginary higher income, they are demanding we pay back $4000 in Working for Families tax credits – money my wife used to maintain us afloat while caring for our youngest in one of the most expensive cities in the world,” Kenneth stated.

The dispute centers on how the IRD treated several one-off payments, including $7,213 in accrued holiday pay and $7,027 resulting from a two-year salary negotiation, according to Kenneth. He alleges the IRD treated these as regular wages, inflating his annual income. “When we challenged this, staff explained that if someone earned $20,000 in one month and nothing for the rest of the year, the IRD would treat them as if they earned $240,000,” he said. “It is a rigid, ‘computer says no’ approach that is leaving families who are already struggling with a massive bill on their way out the door.”

Tax expert Terry Baucher confirmed the practice of annualizing income is employed by the IRD to prevent individuals from avoiding tax obligations by leaving New Zealand mid-tax year. He explained that the issue is compounded by the low threshold at which Working for Families credits initiate to be reduced. “When households earn more than $42,700 a year, their Working for Families entitlements are cut at a rate of 27%,” Baucher said. He added that the $42,700 threshold has remained unchanged since 2018 and the abatement rate was originally 20 cents on the dollar.

Baucher highlighted the potential for significant financial burdens on families. “The threshold is so low, and everything above that is abated at 27c on the dollar. So we have an extremely low threshold, it’s now below the minimum wage. Someone getting 40 hours of minimum wage is now above that. So that’s the real kicker. The extra $26,000 of income just exacerbates that.”

The issue of Working for Families debt has been a recurring concern, with hundreds of millions of dollars currently outstanding. Cases of overpayment, often due to unanticipated income increases, have resulted in substantial repayment demands on families. In one previously reported instance, a couple faced fortnightly repayments of $350 to address a $20,000 overpayment, according to reporting from RNZ.

In response to these concerns, the government initiated a review of the Working for Families scheme last year, exploring options to mitigate the risk of households incurring debt. One proposed solution involves more frequent income reporting to ensure accurate payment calculations. Data from 2022 indicates that only 24% of households receiving weekly or fortnightly payments had their Working for Families credits calculated correctly upon reconciliation by the IRD.

Baucher suggested that the IRD could utilize adjustments to PAYE (Pay As You Earn) tax codes to recover overpayments incrementally, rather than demanding lump-sum repayments. “Instead of requiring people to suddenly front up with $4000 at a time, it’s probably easier for them to say, ‘okay, we’re going to adjust your PAYE code and capture a bit extra to claw that back’,” he said. However, he expressed skepticism about the effectiveness of the current review, stating, “to me the review’s window dressing, to be frank. The whole question around abatements and thresholds, and the amounts of being paid just needs complete rethink, in my view.”

As of February 19, 2026, Inland Revenue has issued a notice regarding severe weather conditions in several districts, advising those affected to delay contacting the agency while focusing on recovery. The agency similarly confirmed that Waitangi Day will not affect Working for Families or paid parental leave payments.